Post on 25-Apr-2023
Electronic copy available at: http://ssrn.com/abstract=2617540
*Witada Anukoonwattaka and Mia Mikic are staff of the Trade and Investment Division, United
Nations Economic and Social Commission for Asia and the Pacific (anukoonwattaka@un.org and
mikic@un.org ).
**Marco Scagliusi is a Research Assistant in the Trade and Investment Division, United Nations
Economic and Social Commission for Asia and the Pacific (marcoscagliusi@gmail.com).
ISSUE No. 10 MAY 2015
Servicification and industrial exports from Asia
and the Pacific
WITADA ANUKOONWATTAKA,* MARCO SCAGLIUSI** AND MIA MIKIC*
Highlights
“Servicification” is most simply defined as an increased use of services in manufacturing
processes. The impact of servicification on the competitiveness of the industrial sector has not
been adequately addressed, especially in policy discussions, because of limited data
availability. However, the OECD-WTO TiVA database now fills this gap for a selected number
of economies. This issue of Trade Insights considers how developments in the service sector
have encouraged and promoted industrial exports from Asia-Pacific economies. Key findings:
Services accounted for 29.4% of the total value added in the industrial exports of Asia and
the Pacific in 2009.
OECD-WTO TiVA data shows that the spread of global value chains (GVCs) in the region
has also resulted in an expansion of servicification across Asia-Pacific developing
economies. The share of intraregional imports of services increased, especially in GVC-
related industrial exports.
Republic of Korea and China are the economies that benefited the most in terms of
intraregional export growth in services. In contrast, Japan has lost its market share.
Distribution-related services and business services are the major elements of service inputs
to industrial exports from Asia and the Pacific. These services accounted for 9% and 7.5%,
respectively, of industrial exports from the Asia-Pacific region in 2009.
Business services contribute extensively to the exports of electrical equipment, machinery,
and transport equipment. These happen to be the sectors where multi-national corporations
(MNCs) have an intensive presence.
Although domestic sourcing of services remains dominant, especially in the cases of
agriculture and mining exports, the contribution of imported services has been rising. The
share of imported services in industrial exports increased from 7.6% in 1995 to 11.1% in
2009. The increase of service imports is particularly rapid in the case of business services.
Liberalizing services trade would allow cheaper imports of services inputs and facilitate
cost-efficiencies in Asia-Pacific supporting industrial production through GVCs.
Liberalization should not be restricted to regional South-South liberalization, as developed
economies remain the dominant source of imported service inputs.
Trade Insights
Electronic copy available at: http://ssrn.com/abstract=2617540
Trade Insights Issue No. 10
2
Introduction
ESCAP (2014) showed that services value-added, across all world economies, accounted for
29% of the global gross exports in 2009. In addition, there was an increase in the reliance on
imported services at the expense of domestically-supplied ones. The increased importance of
“servicification” implies that services have become key to enhancing the competitiveness of
economies, especially those exporting industrial products through global value chains (GVCs).
In fact, GVC-related production and trade have spread more extensively through the Asia-
Pacific region than in the rest of the world implying the high importance of servicification, inter
alia, to the development of industrial exports of the region.
Taking into account the unique characteristics of the region, this note focuses closely on
servicification in Asia and the Pacific. The analysis looks into the types of service inputs
embedded in industrial exports of Asia and the Pacific, and explores sourcing patterns for these
inputs. The note also sheds light on appropriate policies for liberalization of trade, and regional
integration in services, to enhance international competitiveness of Asia-Pacific economies.
Contribution of services in Asia-Pacific industrial exports
The recognition of the value created, directly or indirectly, by services in the process of
manufacturing, distribution and marketing of goods has become known as “servicification”
(ESCAP, 2013). The expansion of servicification is driven by many factors, most notably
reductions of barriers to trade in services, and the spread of GVCs. According to Gereffi et al.,
(2001), GVCs rely intensively on services to link and coordinate the activities located in
different economies. In addition, increasingly liberal trade in services as well as the
advancement of communication and transportation technologies have increased the tradability
of services and consequently generated a higher share of foreign services in industrial exports.
Based on data from the OECD-WTO TiVA database,1 figure 1 depicts the share of services
value-added embedded in gross industrial exports in 2009 in the Asia-Pacific region.2 Service
content in industrial exports from Asia-Pacific economies amounts to 29.4%.3 The share of
services is predominant in high-technology sectors, namely electrical and optical equipment
(32.5%), machinery (30.8%), transport equipment (30.6%), and chemicals and non-metallic
mineral products (30%), while it lags behind in agriculture, hunting, forestry and fishing
(18.5%), mining and quarrying (21.8%) and food products (25.2%). These results are consistent
with global trends, under which transport equipment and high-tech sectors are the most service-
intensive industries (World Bank, 2013). However, the share of services value-added could
1 The analysis is based on data on trade in value added from OECD-WTO TiVA database accessed in March 2015. The database
covers 56 economies of which 17 are ESCAP members (Australia, Brunei Darussalam, Cambodia, China, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Russian Federation, Singapore, Thailand, Viet Nam, Turkey and Hong Kong; China). As these 17 economies and Taiwan Province of China account for 97.4% of merchandise exports and 97.3% of merchandise imports by Asia-Pacific economies in 2013 they are taken as a representative sample of a region. The OECD-WTO TiVA database covers 18 sectors classified under 1 digit-ISIC Rev .3, which comprises 11 industrial sectors (agriculture, mining, food products, textiles and apparel, wood and paper, chemicals and minerals, basic metals, machinery, electrical equipment, transport equipment, other manufactures and utilities) and 7 service sectors (construction, wholesale and retail, transport and telecoms, finance and insurance, business services and other services). The OECD-WTO TiVA database provides data for 1995, 2000, 2005, 2008 and 2009. 2 Value-added in exports can be split in its three components: value-added from services, manufacturing and primary
products. Increasing the share of one of these components, ceteris paribus, leads to the decrease of the other two shares. 3Service content in world exports of industrial products was 29% in the same period (ESCAP, 2014).
Trade Insights Issue No. 10
3
differ across economies of different development levels.4 With reference to the correlation
between the level of development and trade in services, the World Trade Report (WTO, 2014)
estimated a gap in the share of services value-added in exports between developed and
developing economies as big as five percentage points.
Domestic services account for 18.3% of total industrial exports from the Asia-Pacific, while
foreign services’ contribution is 11.1%.5 There is a variation across industries. Notably, the
share of imported services seems to be related to GVC-related exports. For instance, the share
of imported services is particularly high in the exports of electrical and optical equipment
(16%) in comparison to the share in exports of other sectors, especially the agriculture and
mining sectors.
Figure 1: Services content in gross exports of Asia-Pacific economies,
by industrial sector, 2009
Source:ESCAP calculation based on OECD-WTO TiVA database (2015).
Over the past several decades, there has been substantial replacement of domestic services by
imported ones, especially in high-technology sectors (figure 2). Domestically provided services
fell dramatically in transport, machinery, electrical equipment and manufacturing. The drop of
domestic services has been more than replaced by the expansion of foreign services, which
increased significantly by 5.7, 5.6 and 5.6 percentage points, for transport, machinery and the
electrical sectors, respectively. Consistent with these findings, the WTO (2015) indicated that
developing economies experienced a dramatic decrease in domestic services and a sharp
growth in foreign services value-added between 1995 and 2009. One of the reasons for the
4 Following the United Nations classification, the economies analyzed in this note comprise 1 least developed economy
(Cambodia), 12 developing economies (Brunei Darussalam, China, India, Indonesia, Malaysia, Philippines, Republic of Korea, Singapore, Thailand, Turkey, Viet Nam and Hong Kong, China and Taiwan Province of China), 1 economy in transition (Russian Federation) and 3 developed economies (Australia, Japan and New Zealand) 5 Domestic services include direct, indirect and re-imported ones. Direct domestic services value-added is the value added by
services exporting industry. Indirect domestic services value-added is the value added by other domestic services companies that provide intermediate inputs to exports of goods and services.
16.519.5 21.1 21.9
19.3 18.2 18.0 17.2 17.9 17.513.4
16.0 11.3 9.4 8.510.7 11.7
9.3 9.5 7.34.3
5.2
0
5
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20
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35
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Basic
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ort
valu
e
Foreign services value-added
Domestic services value-added
Trade Insights Issue No. 10
4
declining share of domestic services could be the increasing tendency of services offshoring
which has become a common element of GVC phenomenon.6
Figure 2: Changes in the shares of services value-added in gross industrial exports of
Asia-Pacific economies, 1995-2009
Source:ESCAP calculation based on OECD-WTO TiVA database (2015).
In sum, the information above suggests that the spread of GVCs especially in high-technology
industries seems to translate into a relatively high service intensity of production and exports. A
large part of rising service content has shifted from domestic sources to imports, which implies
that access to cost-efficient service imports may be an important part for enhancing the
country’s competitiveness in the exports of high-technology industrial sectors.
Key services for export competitiveness of Asia-Pacific industries
Policies to promote competitiveness of industrial exports should pay a particular attention to
the cost-efficiency of key service inputs. Services inputs related to distribution (wholesale,
retail, hotel and restaurant services) are the most important, with a share of 9% in gross
industrial exports (figure 3). In fact, the share of wholesale and retail trade, hotels and
restaurants service in exports of Asia-Pacific economies is higher than the world average (8%).
Business services, and logistic-related services (transport and storage, post and
telecommunication) are the other two major service inputs to the production of industrial
exports, contributing 7.5% and 5.2% of gross industrial export value added, respectively. The
service sector with the lowest contribution is construction, amounting to roughly 0.6% just after
the residual category of other services with 1.6% share.
By their nature (services were historically perceived to be non-tradable), most services are
likely to have relatively high domestic content, especially utility services (electricity, gas and
water supply) and construction services. Among services embedded in industrial exports of 6 Another factor could be the relative rapid increase in the value added from industrial sector.
-8
-6
-4
-2
0
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4
6
8
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ing a
nd
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Agriculture
Perc
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tag
e P
oin
ts
Foreign services value-added
Domestic services value-added
Trade Insights Issue No. 10
5
Asia and the Pacific, electricity, gas and water supply, and financial intermediation have the
highest domestic-to-foreign value-added ratio: 3 and 2.2, respectively. Similarly, in the case of
wholesale and retail trade, hotels and restaurants, domestic services account for about two-third
of the total value added. In contrast, business services depend on the contribution from foreign
suppliers for slightly more than a half of business services embedded in industrial exports of
Asia and the Pacific.
Figure 3: Services inputs to gross industrial exports of Asia-Pacific economies, 2009
Source:ESCAP calculation based on OECD-WTO TiVA database (2015).
Service offshoring seems to be taking place for all service inputs. There has been a decline in
the domestic content of all service inputs from 1995 to 2009 (figure 4). The shift of service
sourcing has been most striking in the cases of business services where the domestic
component decreased by 2.2 percentage points during those years.
0
1
2
3
4
5
6
7
8
9
10
Whole
sale
and
reta
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ade;
Hote
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s
Foreign services value-added
Domestic services value-added
Trade Insights Issue No. 10
6
Figure 4: Changes in services value-added in gross industrial exports of
Asia-Pacific economies, by source, 1995-2009
Source:ESCAP calculation based on OECD-WTO TiVA database (2015).
Figure 5: Services inputs to gross industrial exports of Asia-Pacific economies, by
industrial sector, 2009
Source: ESCAP calculation based on OECD-WTO TiVA database (2015).
Intraregional traded services in industrial exports from the Asia-Pacific
The increasing reliance on imported services mentioned earlier may boost intraregional trade
opportunities if the rising demand for imported services can be met by supply (exports) from
Asia-Pacific economies. A comparison between sources of imported service inputs from 2000
to 2009 reveals that the share of intraregional imports rose from 42.5% of service inputs to
-2.5
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-1.5
-1.0
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tag
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Domestic services value-added
9.8 9.2 9.4 9.7 9.0 9.5 9.2 8.2 9.34.8
7.0
9.68.0 7.9 5.7 7.3 6.2 5.8 6.1 5.5
5.13.4
4.23.8 3.7
3.5 3.4 5.03.1 4.1 2.7
3.0 2.8
2.1
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2.4 1.1
4.95.3 5.6 5.9 5.4 5.3
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3.0
1.51.7 1.5 1.6 1.4 1.4
1.5 1.51.2
1.3
0.84.4
0
5
10
15
20
25
30
35
Ele
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ical
equip
ment
Machin
ery
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ment
Basic
meta
ls
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icals
&
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ls
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paper
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appare
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tag
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s
Construction
Other services
Transport and storage, post and
telecommunication
Electricity, gas and water supply
Financial intermediation
Business Services
Wholesale and retail trade; Hotels and
restaurants
Trade Insights Issue No. 10
7
47.3% (figure 6). In 2009, more than 80% of these imports were sourced from just 8 out of the
18 Asia-Pacific economies included in the database: Australia, China, India, Japan, Republic of
Korea, Russian Federation, Hong Kong, China and Taiwan Province of China.7 Although Japan
remains the most important source of services inputs for the Asia-Pacific region, the country’s
contribution has declined from 16.4% in 2000 to 12.5% in 2009. On the other hand, the share
of imported services sourced from other economies increased, mainly service exports from
China, Republic of Korea, and India, whose shares increased by 1.6, 1.4, and 1.3 percentage
points from 2000 to 2009.
Figure 6: Intraregional imports of services inputs in industrial exports of Asia and the
Pacific by sources, 2000 and 2009
Source:ESCAP calculation based on OECD-WTO TiVA database (2015).
Conclusion
Better statistical tracking of trade in value added has uncovered the phenomenon of
servicification which had been a hidden part of trade values contained in the supply chains of
goods. Using this new statistical source, this issue of Trade Insights confirms that services
create a significant portion of industrial goods’ export value. In the Asia-Pacific economies
covered by the OECD-WTO TiVA Database, the value created by services as intermediate
inputs represents about 29% of the total value added in industrial exports. In electrical,
machinery, transport equipment, chemical products and basic metals directly and indirectly
embodied services account for over 30% of value added of exports.
GVCs heighten the need for co-ordination and efficient linking of production stages and
locations, with services playing a particularly prominent role. They rely heavily on distribution,
logistics and information and communication technologies and therefore on efficient network
infrastructure and complementary services such as finance and insurance. In the OECD-WTO
7 The graph shows the top 8 performing economies in terms of services exported. The remaining 10 economies (Brunei
Darussalam, Cambodia, Indonesia, Malaysia, Philippines, New Zealand, Singapore, Thailand, Turkey, and Viet Nam) are clustered in “Other AP economies”.
16.4 12.5
7.8
9.1
4.0 5.4
3.5 5.1
3.4 4.2 2.7
3.3 2.4 2.8 1.5 2.7
0
5
10
15
20
25
30
35
40
45
50
2000 2009
Perc
en
tag
e o
f im
po
rted
serv
ice
inp
uts
India
Russian Federation
Hong Kong, China
Australia
Taiwan Province of China
China
Republic of Korea
Other Asia-Pacific economies
Japan
Trade Insights Issue No. 10
8
database, distribution, business-coordination, and logistics are among the most important
service inputs for the cost efficient production of Asia-Pacific industrial exports. At present,
much of these key intermediate services are imported, in particular business services which are
one of the essential inputs for production of exported manufacturing goods, especially
electrical, machinery, transport equipment, and chemical products.
The importance of servicification requires a comprehensive approach to policy formulation.
While liberalizing trade in goods is a starting point for creating new trade opportunities, the
value chains of industrial goods also requires efficient services. Improvements in the
performance of the service sector, including by liberalization of services trade, would thereby
enhance the competitiveness of manufacturing firms and facilitate their participation in global
production networks. In contrast, restricted service trade and rigid regulation, often found
among some of the fastest growing economies in the region such as China, India, Indonesia,
Philippines, Malaysia and Thailand, could translate into negative effects on exports of goods
(World Bank, 2012).
However, as imported services become an increasingly essential element of internationalized
production, governments will come under more pressure to find a balance between assisting
domestic service providers and promoting the competitiveness of manufacturing exports in
GVCs. There is also a risk that too much reliance on imported intermediate services and goods
may lead to limited development spillovers from GVCs to the rest of the economy.
The general direction of service trade policy should then focus on creating competitive market
conditions and developing a well-functioning domestic service sector that meets high
regulatory standards. Measures will have to vary from sector to sector. For instance, ensuring
access to the grid or network for new entrants in the telecommunications or electricity sectors
should help in creating a level playing field and result in pro-competitive efficiency gains. The
openness of financial services with a good regulatory framework could enhance competition
and stability of financial sector and contribute to macro stability. In addition, it is important to
have a comprehensive set of policies to encourage spillovers and technological diffusion from
foreign to domestic providers. This may include, for example, public investment to upgrade and
improve accessibility to backbone infrastructure such as railways, ports, health, and education.
The provision of education and training (e.g. in IT, languages, and professional skills) as well
as greater domestic and international labour mobility will enable domestic firms, as well as
individuals, to take advantage of service-export opportunities.
Trade Insights Issue No. 10
9
References
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Pacific.
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ESCAP (2014). Asia-Pacific Trade and Investment Report (APTIR) 2014: Recent Trends and Developments. Economic and
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nufacturing and
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